Andrew Van Sickle editor@moneyweek.com
“The past is a foreign country; they do things differently there,” said L.P. Hartley. This week 25 years ago, the Treasury announced that it would sell up to 60% of our gold reserves. It proved a spectacular example of selling low. At the “Brown bottom” (see page 24), as it came to be known, the price of the yellow metal was slowly picking itself up from historic lows. When the spree began it was below $300 an ounce, compared with today’s record highs around $2,300.
The upshot, says Hargreaves Lansdown’s Hal Cook, is that Britain missed out on a return of 980% in sterling terms on the gold that was ditched. The MSCI All Countries World index rose by just 500% and the FTSE 100 by 210%. Inflation has increased by 85% since 1999.
Greenspan, not gold
Selling gold seems insane from today’s perspective, but in 1999 there was a pervasive feeling that it wouldn’t be needed, as the world was no longer a dangerous place following the West’s victory in the cold war and confidence in the monetary system was sky-high. “Who needs gold when we have Alan Greenspan,” wondered The New York Times. Who indeed, the central banks of Austria, the Netherlands, Belgium, Canada, Australia and Argentina, all of whom sold gold in the late 1990s too, must have thought.
Several decades and massive political and economic crises later, the structural backdrop could hardly look more different. As growth in the US appears to be slowing and inflation intensifying, Google searches for “stagflation” have jumped to their highest level since the first half of 2022, when inflation was rocketing, says US investment service provider Bespoke Investment Group.
Expect the figure to rise. The World Bank warned this week that commodity prices have stopped falling, which means that “a key force for disinflation has essentially hit a wall”. The upshot is that “global inflation remains undefeated”.
This is especially awkward because growth isn’t what it used to be. The expansion of GDP has slowed all over the world as productivity has faltered in the past two decades. Productivity has ticked up in the US recently, gaining 1.3% in 2023, but that is below the long-term US average of 2.1%, as Breakingviews points out. In the EU and Britain, productivity has flatlined in recent years, and the gap between Europe and the US in this respect has widened. This helps explain why America’s GDP has risen
